By Ian Salisbury

It's time to play defense: The reasons are many.

Less than a week ago, the S&P 500 was at a record high, but it has been rough going since. On Tuesday, the index was down 0.5% -- its fourth straight decline.

A host of factors are to blame for Wall Street's jitters. President Donald Trump's overhaul of the federal government has stoked confusion and uncertainty. The economy looks shakier, too: The consumer confidence index for February endured its largest monthly decline since August 2021. But real scare for investors is the rising risk of a market correction.

"Chatter about a looming U.S. stock market correction has become deafening," wrote DataTrek Research co-founder Nicholas Colas in a note Tuesday.

Here's how to take matters into your own hands. For starters, don't panic. Colas, who remains bullish on U.S. stocks, recommends taking a wait-and-see approach. Several times in the past few years, the market has seemed to teeter -- only to go on to bigger and bigger gains.

Colas says to watch the Cboe Volatility Index, a measure of market volatility known as the stock market's "fear gauge." The so-called VIX is at about 19.7, not far above its long-run average of about 18.

Colas flags 27.3 as the level to watch -- that's where investors could enjoy a short-term buying opportunity. And if the market doesn't quickly right itself at that point, then, he says, "We know we have bigger problems."

The other option for investors looking to protect themselves -- without cutting back stock exposure -- is getting selective. They can tilt their portfolios toward defensive sectors like consumer staples, dividend payers, and foreign stocks.

It's worth noting that while the S&P 500 closed in red Tuesday, 297 of the index's stocks posted gains. In fact, staples stocks rallied, despite the broader market slump. The Consumer Staples Select Sector SPDR exchange-traded fund rose 1.4%, the biggest gain among the 11 sectors that comprise the S&P 500.

Among the ETF's best performers: Keurig Dr Pepper, which rose 2.4%, after it reported better-than-expected earnings helped by soda and iced tea sales and Walmart stock, up 4.3%.

Walmart shares fell last week after a weaker-than-expected outlook. But stock tends to do well when consumers are feeling pressed, and investors have likely decided they overreacted.

"The guidance is beatable," wrote D.A. Davidson analyst Michael Baker in a note following Walmart's earnings report. "The track record shows a penchant to beat."

Dividend stocks are another potential refuge. The ProShares S&P 500 Dividend Aristocrats ETF gained 0.8% Tuesday. The fund invests in companies that have raised their dividends for at least 25 years -- in other words, have delivered for investors in all market environments. "You can't fake dividends," says ProShares investment strategist Simeon Hyman.

Looking outside the U.S. can also provide investors with a way to diversify. U.S. stocks have long outperformed foreign ones. So far this year, overseas stocks -- which trade at far lower average price-to earnings ratios -- have reversed the dynamic. The iShares Europe ETF is up 10.2% year to date, compared with 1.9% for the S&P 500.

One key reason: The fund owns far fewer big tech companies, such as the U.S.'s Magnificent Seven. That grouping of tech giants drove U.S. stock market returns in 2024, but has weighed on them this year.

"European equity bourses are not exposed to tech, which I think is primed for a dramatic re-rating." wrote Marko Papic, macro-geopolitical chief strategist at BCA Research in an email.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 25, 2025 16:51 ET (21:51 GMT)

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